Evaluation of the effects of financial regulatory reforms on small and medium-sized enterprise (SME) financing: Overview of responses to the consultation

29 November 2019 | PDF full text (207 KB)

Summary of document history

Summary of document history

On 7 June 2019, the FSB published an Evaluation of the effects of financial regulatory reforms on small and medium-sized enterprise (SME) financing for public consultation. Interested parties were invited to provide written comments by 7 August 2019. This note summarises the main points from the responses and sets out the main changes that have been made in the evaluation report to address them. The FSB thanks those who took the time and effort to express their views.

Guiding principles for the operationalisation of a sectoral countercyclical capital buffer

27 November 2019

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The Basel Committee on Banking Supervision’s (BCBS) Basel III standard includes a countercyclical capital buffer (CCyB) regime. National authorities can implement a CCyB requirement to ensure that the banking system has an additional buffer of capital to protect against potential future losses related to downturns in the credit cycle.

A sectoral countercyclical capital buffer (SCCyB) is a useful complement to the CCyB. While a bank’s additional capital requirements following the activation of the CCyB depend on total risk-weighted assets, a SCCyB is a more targeted measure allowing national authorities to temporarily impose additional capital requirements that directly address the build-up of risk in a specific sector. The impact of a SCCyB would depend on a bank’s exposure to a targeted credit segment (eg, residential real estate loans). Targeted tools such as the SCCyB may be effective to aid in building resilience early and in a specifc manner, to more efficiently minimise unintended side effects, and may be used more flexibly than broad-based tools.

These guiding principles are intended to support the implementation of a SCCyB on a consistent basis across jurisdictions. The guiding principles are not included in the Basel standards and are only applicable for those jurisdictions that choose to implement them on a voluntarily basis.

Annex 2: Technical Guidance on the Implementation of the FSB Framework for Haircuts on Non-centrally Cleared Securities Financing Transactions

26 November 2019

Regulatory framework for haircuts on non-centrally cleared securities financing transactions

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This report was originally published on 12 November 2015. Updates were made on 19 July and 26 November 2019.

This document sets out the regulatory framework for haircuts on certain non-centrally cleared securities financing transactions (SFTs). The framework aims to address financial stability risks associated with SFTs. The report includes numerical haircut floors to apply to non-bank-to-non-bank SFTs that were finalised after taking into account responses to a public consultation in October 2014.

2019 list of global systemically important banks (G-SIBs)

22 November 2019 | PDF full text (205 KB)

The 2019 list of global systemically important banks (G-SIBs), uses end-2018 data and an assessment methodology designed by the Basel Committee on Banking Supervision (BCBS).

One bank (Toronto Dominion) has been added to the list of G-SIBs that were identified in 2018, and therefore the overall number of G-SIBs increases from 29 to 30.

FSB publishes 2019 G-SIB list

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Ref no: 43/2019

The Financial Stability Board (FSB) today published the 2019 list of global systemically important banks (G-SIBs) using end-2018 data and an assessment methodology designed by the Basel Committee on Banking Supervision (BCBS).

One bank (Toronto Dominion) has been added to the list of G-SIBs that were identified in 2018, and therefore the overall number of G-SIBs increases from 29 to 30.

FSB member authorities apply the following requirements to G-SIBs: 

  • Higher capital buffer: The G-SIBs are allocated to buckets corresponding to higher capital buffers that national authorities require banks to hold in accordance with international standards. Compared with the 2018 list of G-SIBs, one bank have moved to a lower bucket: Deutsche Bank has moved from bucket 3 to bucket 2.

  • Total Loss-Absorbing Capacity (TLAC): G-SIBs are required to meet the TLAC standard, alongside the regulatory capital requirements set out in the Basel III framework. The TLAC standard began being phased in from 1 January 2019 for G-SIBs identified in the 2015 list (provided that they continued to be designated as G-SIBs thereafter).

  • Resolvability: These include group-wide resolution planning and regular resolvability assessments. The resolvability of each G-SIB is also reviewed in a high-level FSB Resolvability Assessment Process (RAP) by senior regulators within the firms’ Crisis Management Groups.

  • Higher supervisory expectations: These include heightened supervisory expectations for risk management functions, risk data aggregation capabilities, risk governance and internal controls.

BCBS today published updated denominators used to calculate banks’ scores and the values of the underlying twelve indicators for each bank in the assessment sample. The BCBS also published the thresholds used to allocate the G-SIBs to buckets, as well as updated links to public disclosures of all banks in the sample.

A new list of G-SIBs will next be published in November 2020.

Notes to editors

The requirements for G-SIBs summarised above are “higher” in the sense that they are additional to the minimum standards that apply to all internationally active banks under the Core Principles of the BCBS.

FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Governor Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

FSB letter to ISDA on pre-cessation triggers

19 November 2019 | PDF full text (120 KB)

This letter from the Co-Chairs of the FSB’s Official Sector Steering Group (OSSG) encourages the International Swaps and Derivatives Association (ISDA) to add a “pre-cessation” trigger alongside the cessation trigger as standard language in the definitions for new derivatives and in a single protocol, without embedded optionality, for outstanding derivative contracts referencing key Interbank Offered Rates (IBORs). This would help to reduce systemic risk and market fragmentation by ensuring that as much of the swaps market as possible falls back to alternative rates in a coordinated fashion.

Financial institutions must be prepared for the withdrawal of official sector support for LIBOR at end-2021. In March 2019, the Co-Chairs had written to ISDA encouraging consultation on a pre-cessation trigger that would take effect in the event that the UK Financial Conduct Authority, in its capacity as the regulator of LIBOR, found LIBOR no longer to be capable of being representative, for example because of the departure of panel banks at end-2021. The Co-Chairs consider it important for ISDA to find a way to accommodate the majority view from its consultation and include this trigger in as straight-forward a manner as possible.

In this letter, the FSB asks ISDA to take forward this option and, if necessary to broaden and consolidate the consensus, set it out in a further and hopefully conclusive consultation that also invites respondents to identify any critical flaws, fine-tuning improvements or viable alternatives to such an approach.

The work on derivatives contractual robustness is part of ongoing work to reform financial benchmarks. The FSB and member authorities through the OSSG are working to implement and monitor the recommendations of the 2014 FSB report Reforming Major Interest Rate Benchmarks.

Since July 2016, ISDA has undertaken work, at the request of the OSSG, to strengthen the robustness of derivatives markets to the discontinuation of widely-used interest rate benchmarks. The OSSG engages regularly with ISDA and other stakeholders with a view to their taking action to enhance contractual robustness in derivatives products and cash products, such as loans, mortgages and floating rate notes.

FSB MENA group discusses regional financial stability, stablecoins, cyber incidents and implementation of financial reforms

17 November 2019

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Ref no: 42/2019

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for the Middle East and North Africa (MENA) met today in Riyadh at a meeting hosted by the Saudi Arabian Monetary Authority.

Members received a briefing update from the Saudi Arabian authorities on the financial regulatory priorities for their G20 Presidency starting next month. The group also received an update on the FSB’s ongoing work and its plans for 2020, which were discussed at the FSB Plenary meeting earlier this month. RCG members discussed the FSB’s programme of evaluations of the effects of post-crisis reforms, including the evaluation of small and medium- sized enterprises (SME) finance to be published this month. They emphasised the importance of SMEs to economic activity in the region. Members also discussed international work on the transition from LIBOR and other IBORs, and underlined the importance of financial and non-financial firms being prepared for the risk that LIBOR will end once official sector support for the benchmark is withdrawn at end-2021.

Members discussed global and regional financial vulnerabilities, including a weaker global growth outlook, the implications for the region of the “lower for longer” interest rate environment and rising debt burdens, in particular of governments and corporations. At the same time, they noted the protection provided by the resilience of financial institutions and markets in the region. Some members thought challenges for IBOR transition might actually lay the ground for opportunities to deepen the local capital markets.

The group discussed the implications of stablecoins on financial stability and monetary stability. They considered the potential challenges such instruments also pose in areas such as, consumer and investor protection; cross-border capital flows including remittances; market integrity; cyber security; and anti-money laundering/countering the financing of terrorism regulation. However, they emphasised more generally the need for improvements in the speed and access to cross-border payment systems.

Given the increasing risk of cyber incidents, the RCG discussed the FSB’s work to develop effective practices for cyber incident response and recovery. A preliminary set of practices has been drawn from survey responses by authorities, including those in the region. The FSB toolkit will be issued for public consultation in early 2020.

Members discussed implementation of G20 regulatory reforms in non-G20 jurisdictions and jurisdictions’ experiences in tailoring implementation to the specificities of their financial systems.

The group expressed support for a set of recommendations developed by a working group of FSB and RCG members, and adopted by the FSB Plenary in early November, to enhance the effectiveness of RCGs as an outreach and feedback mechanism.

Notes to editors

The RCG for the MENA is co-chaired by Ahmed Alkholifey, Governor of the Saudi Arabian Monetary Authority, and Rasheed M. Al Maraj, Governor of the Central Bank of Bahrain. Membership includes financial and regulatory authorities from Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, Turkey and the United Arab Emirates.

The FSB has six Regional Consultative Groups, established under the FSB Charter, to bring together financial authorities from FSB member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability.[1] Typically, each Regional Consultative Group meets twice each year.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Governor and Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

[1] The FSB Regional Consultative Groups cover the following regions: Americas, Asia, Commonwealth of Independent States, Europe, Middle East and North Africa, and sub-Saharan Africa.

Insurance Core Principles, Standards, Guidance and Assessment Methodology

14 November 2019

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The ICPs are the highest level in the hierarchy of IAIS supervisory material and prescribe the essential elements that must be present in the supervisory regime in order to promote a financially sound insurance sector and provide an adequate level of consumer protection. Standards are directly under the ICPs in the hierarchy of IAIS supervisory material. Standards are linked to specific ICPs and set out key high-level requirements that are fundamental to the implementation of the insurance core principles and should be met for a supervisory authority to demonstrate observance with the core principles. Guidance material typically supports the core principles and/or standards and provides detail regarding how to comply with or implement a core principle or a standard. Guidance material does not set out new requirements but rather describes what is meant by the requirement.

 The ICPs were first issued on 1 October 2011. Individual core principles, with related standards and guidance, were amended in subsequent years to reflect best practices, address changes to the insurance sector and supervisory requirements, align them with standards from other standard setting bodies, as well as to incorporate findings generated by the IAIS’ feedback loop between implementation activities and standard setting.

 In November 2019, the IAIS completed the multi-year process for reviewing and revising the Insurance Core Principles (ICPs).

Assessment Methodology

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The Assessment Methodology is included in the Insurance Core Principles document. It was issued by IAIS on 1 October 2011 and amended in November 2019. Assessment of a jurisdiction’s observance of the ICPs can facilitate effective implementation by identifying the extent and nature of strengths and weaknesses in a jurisdiction’s supervisory framework – especially those aspects that could affect policyholder protection and financial stability.

Assessments against the ICPs can be conducted in a number of contexts including:

  • self-assessments performed by the jurisdiction itself. These may be performed with the assistance of outside experts and/or followed by peer review and analysis;

  • reviews conducted by third parties; or

  • reviews in the context of the Financial Sector Assessment Program (FSAP) conducted by the International Monetary Fund (IMF) and World Bank

2019 Resolution Report: “Mind the Gap”

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This resolution report provides an update on progress in implementing policy measures to enhance the resolvability of systemically important financial institutions and sets out plans for further work. The report concludes that authorities and firms need to be mindful of any remaining gaps as they work towards making resolution strategies and plans operational in all sectors.

  • Central Counterparties (CCPs) – A policy priority for the FSB is the further strengthening of the resilience and resolvability of CCPs. Its continuing work on financial resources and tools to support orderly resolution will lead to further guidance, on which the FSB will publicly consult during the second quarter of 2020.

  • Banks – Global systemically important banks have been made more resolvable through the build-up of total loss-absorbing capacity (TLAC) and other measures. Notwithstanding this progress, challenges remain. Authorities need to determine the appropriate balance between group-internal distribution of TLAC and non-pre-positioned resources; and access to temporary liquidity in the relevant currencies and in adequate amounts when and where needed by firms going through resolution requires ex ante preparation by firms and authorities.

  • Insurance – Resolvability monitoring in the insurance sector highlighted in particular challenges stemming from group-internal interconnectedness.